FIGS Hit with Securities Class Action After Disappointing Financial Results Triggered Stock Price Drop

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A proposed class action alleges FIGS, Inc. and its top executives misled investors ahead of the company’s initial public offering (IPO) last year and caused them to be injured financially when disappointing first quarter 2022 financial results triggered a drop in stock value.

More specifically, the 29-page case claims that FIGS, a direct-to-consumer healthcare apparel and lifestyle brand, overstated both before and after its IPO its ability to retain customers. Additionally, the company failed to disclose its increasing dependence on expensive air freight, and inflated its expected net revenues, gross margin and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2022, the complaint alleges.

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According to the suit, FIGS announced disappointing financial results in May 2022 and significantly reduced its performance expectations for the rest of the year because of “supply chain challenges.” Moreover, the company disclosed that for the rest of the year, it planned to significantly increase its use of air freight, which is more expensive than its normal ocean shipping method, the case says.

Upon this news, FIGS’ stock price fell roughly 25 percent, according to the complaint.

The lawsuit relays that FIGS filed a registration statement with the U.S. Securities and Exchange Commission on May 5, 2021 in connection with its upcoming IPO. Following an amendment, the SEC declared the registration statement effective on May 26, and the IPO was completed on June 1 of last year, the suit says.

Per the lawsuit, FIGS’ registration statement contained false and misleading information, in particular the company’s statement that its access to significant customer data allowed it to reliably predict customer buying patterns and “maintain an efficient and steady supply chain.” What FIGS failed to disclose, the case alleges, is that the company’s data did not allow it to reduce supply chain issues through predictable sales, and that FIGS was increasingly relying on air freight to ship products instead of its less expensive overseas shipping method.

The suit contends that although FIGS mentioned air freight in its registration statement, this mention was “itself misleading” given the statement implied that the company’s reliance on air freight was a result of COVID-19 pandemic-related disruptions.

“Thus, the Registration Statement makes the increased use of air freight appear as a short-term issue, not the consistent part of the business in which air freight had become,” the filing argues.

In the months following the IPO, the defendants consistently touted FIGS’ apparent ability to be “highly efficient from a production and supply chain standpoint” and its intention to rely mostly on overseas shipping post-pandemic, the suit says.

On May 12, 2022, however, FIGS issued a press release reporting its first quarter 2022 financial results and an update to its full-year outlook, the case relays. According to the complaint, FIGS slashed its expected 2022 net revenues to a range of $510 million to $530 million, compared with its previous outlook of $550 million to $560 million. Moreover, the company decreased its expected gross margin from 70-plus percent to 67 to 68 percent, and dropped its adjusted gross EBITDA margin from 20-plus percent to a range of 16 to 18 percent, the suit says.

Per the case, these drops were attributed to “a significant increase in the Company’s use of air freight to help mitigate supply chain challenges.”

The lawsuit says investors were injured financially when FIGS’ stock price dropped nearly 25 percent upon the release of this news.

The case looks to represent anyone who purchased or otherwise acquired FIGS common stock between May 27, 2021 and May 12, 2022.

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